Reading Richard Currans excellent column "The Inquisitor" in yesterdays Sunday Business Post (www.sbpost.ie) got me really annoyed for two different reasons.

Firstly, I promised myself that I would investigate the credibilty of the 34% increase in early December after reading in the Financial Times (www.FT.com) that at one stage during trading on the commodity markets the wholesale price for Natural was actually trading in minus for a few milliseconds such was the lack of demand. I'm sure that there was a man somewhere in Russia with a big pipe behing him full of gas with no where for it to go, which can be a cause a concern.But I simply forgot.

Secondly was that fact that here was a semi-state company making easy profits from its 34% increase while the Government and so called independent watchdogs sit quietly afraid of rocking the collective boat.

Richard Curran gives a brilliant analysis on why was Bord Gais were granted a 34%increase on October 1 2006 and will be forced to give back 10% reduction on Feburary 1 2007. The increase will give Bord Gais 123 days at the higher price reaping some €55 million in additional revenue. All this is going on while the British Wholesale price for gas is 40% less than last March and International gas prices have fallen 30% since November, all due to the very mild weather both here and across Europe. He goes onto say that even with the 10% being passed on Bord Gais will have a healthy and wealthy 21% increase in a market where prices are coming down. Sure Bord Gais will argue that they entered in ACQ's(Actual Contracted Quantities) with suppliers, but it is also Industry practice to put in place Hedges in order to minimise risk.

What Richard Curran did'nt approach was how the utility companies will attempt to "pass on" this 10% decrease to your bill.

Heres how they will do it,

Consider a household where the gas bill covers the period Jan to Feb 07. This is a period of 59 days and the bill will be issued in the first week of Mar 07. So how will the gas company know when you consumed the gas? the simple answer is that they do'nt, so what they'll do is to apportion what you used over this period over your average usage over, usually, the previous 3 months, which by the way will contain Christmas and the extra usage that normally comes with this time of the year. So should you be the luckly one to spend 3 weeks in Janurary away in the sun and return to a severe cold snap in Feburary it w'ont matter that a majority of your usage will be in Feburary, when it should be cheaper, will be charged at the inflated price for 31days out of the 59.

This is how they have done it in the past and its how they will do it this time. But for heavens sake they only check your meter 3 times a year anyway, using estimates for the other bills, this would work fine in times of stable prices but alas I feel those days are gone.

So not only do they get a nice big cake they will ensure that they have cream and a cherry on top as well.Even if this works out at an average of say €5 per household this is a nice additional €2.7m of free money, that you and I will pay.

Nice Cherry...

So how could they do this better?  Visit every home in the country early on the 1st February to read the meter? I'm sure the cost of an exercise like this would be passed onto the consumer and with a minimum pay rate of €8.25 it wouldn't be long swallowing up the "€5 per household".

Thanks for the above comment, I must say that I wish I had thought of it.

I've taken the liberty to cost it up to see if it viable.

Firstly I will only use the 540,000 Bord Gais Households that Richard Currans article and my little add-on was based on.

The main assumption here is that the Meter Reader will complete 15 reading's per hour.

So by doing the meter reading's the additional cost to Bord Gais would be €1.25 per household,and even if this was passed on to the householder, the householder based on the "guesstimate" of €5, would be better off to the tune of €3.75.

Even if the figures were based on 10 reads per hour the cost per household would be €1.87 still less than the €5

Potentially another way would be for Bord Gais to take a sample of say 10% of its customer base and analyse those in detail and this inturn would provide them with better data that they could provide better averages(as skewing due to Christmas would be ironed out) when it comes to estimating bills.The cost of this would be less than the cost above again benefiting the customer.

Such efforts I feel would enhance Bord Gais's image and give the customer a much better "experience" in dealing with Bord Gais.

Blacksheep, great blog and excellent financial analysis, If I could be so bold to add even more upside as to why Bord Gais should do this.

Should the "guesstimate" hold true at €5 you correctly said this would earn an additional €2.7m. Of course the Revenue would then collect VAT at 13.5% or €364,500. If they adopted the idea of taking the meter reading's and the cost was passed on this would result in Vat of €91,125 (540,000x1.25@13.5%) plus they would get €47,891 PRSI (ER) €26,730 PRSI (EM) and Income tax of €89,100 giving them a total tax take of €254,846. Which would be €109,654 less than the easy way.

Just thought I'd share this with you.

Thanks for the comment, I thought about including the tax figures but felt that they might over complicate the issue, but thanks for your analysis.

I suppose the more we all look at this the better it gets.

The €109,654 in the tax comment is a red herring.

In the blog a figure of €2.7m is mentioned which the householder will pay to Bord Gais. The VAT on this would be €364,500.

If Bord Gais read the meters and pass the cost onto the householder the €2.7m is reduced by (€1.25 x 540,000) €675,000

This means the householder pays €3.75 instead of €5. This reduces the VAT collected to €273,375

However Bord Gais don't keep VAT. They give it to the Revenue so it doesn't make a difference to Bord Gais what the figure is. They don't benefit from it.

The PRSI and income tax, yes they pay it, but it is already included in the €1.25.

The numbers tell a story, but there is a practical side to this.

It would actually take over five thousand people to read the meters in one day. Bord Gais only employ 714 people.

How do I get to that. 540,000 households with 15 meters read every hour means it takes 36,000 hours to complete the job. Assuming a meter reader works a full productive seven hours this give 5,142 people, i.e. it just isn't practical and probably explains why Bord Gais only read meters three times a year.

 Bord Gais

I'm confused as to who is getting the €5?

At the start it seems to be Bord Gais but then later it seems to be the householder.

As if there is likely to be an outsourcing company out there with over 5,000 (five thousand) people ready to go out and read the meters on the 1st February!

I think you would also need to borrow the NASA computers to process the logistics of this, who goes where etc.

The sampling method is just another means to average a result.

In which case you may as well take the average usage of each consumer over a three month period. This is what I believe Blacksheep said Bord Gais do.

It is the most economical and practical way to do it. It will be fairer to the majority of consumers, compared with a method which, for example, only uses a small sample of consumers to make assumptions about the majority.

On the subject of energy, pricing and the analysis of data.....

Dominion Transmission, owner of the worlds largest natural gas storage system, were sued by conumers about two years ago when gas prices were artifically inflated by between $200million and $1billion after they submitted the wrong data for the weeks gas storage figures.

Dominion had used the same computer file name to store the weeks data, and ended up sending out the wrong spreadsheet. Doh!

Lets just hope Bord Gais crank up the right spreadsheet when calculating my refund....